IMA shares their views
17 September 2010 London
Image: Shutterstock
IMA welcomes the European Commission's draft regulation intended to give effect to the G20 agreement to bring the OTC derivatives market into central clearing, as set out in the Toronto Communique.
Investors support the move towards central clearing and confirm their willingness to work with other market participants and regulators to implement it.
Jane Lowe, Director of Markets at IMA, said:
"The Commission has done well to produce draft regulation that gives effect to the G20 agreement on central clearing and retains balance in how the restructured market will be organised and regulated in the future.
"For end users, however, unfinished business remains. Further work is urgently required to make the proposals economically viable for the client side of the market, including pension schemes, insurance funds and UCITS funds. Otherwise there is a strong probability that the legislation will merely transfer risk from banks to end investors.
"Investment managers are not asking for exemption from legislation or for a special framework: they want to see issues relevant to their clients addressed. Pension schemes and long term savings vehicles were not the cause of the financial crisis, nor did they need Government support to continue in business. Measures to constrain irresponsible speculation are required, but these should not be implemented in a way that adversely affects stable long term investors. As things stand, the costs of central clearing are likely to be borne disproportionately by end investors, despite the fact that they present an extremely low risk to the system.
"We therefore call upon the European institutions working on this legislation to engage with investors and re-evaluate the key provisions set out in draft regulation, in particular those relating to margin and collateral. The regulation will mandate central clearing for many OTC instruments, thus introducing a high degree of concentration at the clearing house level and limiting choice for end investors. In the interests of market stability and to retain good competition discipline, we urge the Commission and others to look again at the impact on end investors and work to redress imbalance between risk and cost."
Investors support the move towards central clearing and confirm their willingness to work with other market participants and regulators to implement it.
Jane Lowe, Director of Markets at IMA, said:
"The Commission has done well to produce draft regulation that gives effect to the G20 agreement on central clearing and retains balance in how the restructured market will be organised and regulated in the future.
"For end users, however, unfinished business remains. Further work is urgently required to make the proposals economically viable for the client side of the market, including pension schemes, insurance funds and UCITS funds. Otherwise there is a strong probability that the legislation will merely transfer risk from banks to end investors.
"Investment managers are not asking for exemption from legislation or for a special framework: they want to see issues relevant to their clients addressed. Pension schemes and long term savings vehicles were not the cause of the financial crisis, nor did they need Government support to continue in business. Measures to constrain irresponsible speculation are required, but these should not be implemented in a way that adversely affects stable long term investors. As things stand, the costs of central clearing are likely to be borne disproportionately by end investors, despite the fact that they present an extremely low risk to the system.
"We therefore call upon the European institutions working on this legislation to engage with investors and re-evaluate the key provisions set out in draft regulation, in particular those relating to margin and collateral. The regulation will mandate central clearing for many OTC instruments, thus introducing a high degree of concentration at the clearing house level and limiting choice for end investors. In the interests of market stability and to retain good competition discipline, we urge the Commission and others to look again at the impact on end investors and work to redress imbalance between risk and cost."
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